A repeat of Australia’s worst disasters such as Cyclone Tracy and Sydney’s giant hailstorm in 1999 would hit the economy much harder now, given increased population and the rising costs of rebuilding, the Insurance Council of Australia has said.
The assessment, contained in this year’s insurance catastrophe resilience report, found that Tracy – which killed 71 people and caused $200m in insured losses when it struck Darwin in 1974 – would cause $7.4bn in losses if repeated today. If adjusted only for inflation, the cost would have been $1.78bn.
Sydney’s hailstorm, which cost $1.7bn in insured losses in April 1999, would land a damage bill of $8.85bn if an equivalent event struck now. Had inflation changes only been taken into account, the bill would have been $3.28bn.
Both tallies exceed the $6bn paid out by insurers for the 2022 floods in south-eastern Queensland and northern New South Wales, currently Australia’s costliest disaster. The revised data, modelled by Risk Frontiers, adjusted costs for inflation, changes in property numbers and values and tougher building codes.
ICA’s chief executive, Andrew Hall, said soaring costs associated with extreme events – even before global heating was factored in – should be considered in debates about population growth, especially in the eastern states.
“We’ve got to think about housing that population in safe, durable and insurable homes,” he said. “Otherwise, we’re just setting ourselves up for large costs moving forward, particularly in a changed climate, and it impacts everybody in the insurance market.”
Insurers paid out $1.6bn in claims for the year to June, or just 22% of the record tally for the previous 12 months of $7.28bn.
Hall, though, said insurers were still trying to recapitalise balance sheets after taking a battering over three La Niña years and consumers shouldn’t anticipate lower premiums.
Reinsurance costs have this year risen to 20-year highs, pushing up Australian insurers’ costs by 20-30%. “Australia has been traditionally thought about as a good diversified risk for reinsurance globally,” he said. “Over the last decade, what we’ve seen is reinsurers have reassessed the risk factors in the Australian market and the prices have changed accordingly.
“The cost of rebuilding has gone up enormously,” Hall said, adding insurers were also having to hire and retain more staff to cater for large surges in claims.
Australia already had a notably variable climate – particularly for rainfall – even before climate shifts take effect in a warming world. Rising premiums after disasters are also increasingly putting insurance out of the reach of many Australians.
The Albanese government announced in its first budget last October a five-year, $1bn disaster-ready fund for mitigation infrastructure that was matched by the states and territories. Those funds were inadequate to meet the “enormous” requirements to make at-risk communities more resilient, Hall said.
Spending on property buybacks and improving infrastructure after the Queensland and NSW northern rivers floods alone would cost $1.5bn, he said.
“There will be another dozen regions around Australia that would require at least that level of investment when it comes to flood protection and mitigation,” Hall said. “That’s excluding western Sydney, which is our largest, unmitigated flood risk in Australia.”
The median home insurance cost last year was $1,894. Cyclone-exposed Northern Territory was the most expensive, while taxes inflated those in NSW. South Australia’s premiums were the lowest.
Some perils, such as flooding, were more predictable in their location if not in their intensity and timing. Risks could be reduced by enforcing planning limits and, in some cases, buying out properties in hazardous zones.
For others, such as hailstorms, home builders should consider using thicker steel roofing than is often chosen now as one way to reduce rebuilding costs.
“If it’s not a certain thickness then the hail usually compromises [it] and the whole roof has to be replaced,” Hall said. “Eventually someone’s going to have to pay for the upgrade when the worst happens.”
